Skip to main content

Report On Business Jean Coutu chief likely to address future growth, pressure for acquisition

Jean Coutu has the resources to pull off a significant acquisition, or it could partner – or be acquired – in a rapidly consolidating retail landscape.

Christinne Muschi/The Globe and Mail

Jean Coutu Group (PJC) Inc. continues to enjoy a strong, profitable retail presence in its home province of Quebec. A move into generic drug manufacturing has proven to be a smart decision, with the unit – Pro Doc Ltd. – providing a reliable, if modest, income stream. And Coutu recently opted for an investor-friendly share-buyback program as well as a one-time dividend of 50 cents.

Yet there is fretting among many shareholders and analysts that the pharmacy giant's management team, led by François Coutu, is just sitting tight and failing to address the bigger picture.

The company has the resources to pull off a significant acquisition, or it could partner – or be acquired – in a rapidly consolidating retail landscape that has recently seen the takeover of Shoppers Drug Mart Corp. by Loblaw Cos. Ltd. and Sobeys Inc.'s acquisition of Safeway Canada.

Story continues below advertisement

U.S. giants Target Corp. and Wal-Mart Stores Inc. are also making inroads in the drugstore sector.

Mr. Coutu will likely face questions on Thursday's third-quarter conference call about where future growth is going to come from in the chain's relatively limited Quebec market and in the face of increased competition and consolidation.

"They have the resources ready to deploy. They have a strong balance sheet," said Manish Kacker, associate professor of marketing at McMaster University.

"What they say in the third quarter may shed more light on the longer-term approach, whether to keep their powder dry on acquisitions or deploy capital to make themselves more attractive to an acquirer," he said.

RBC Dominion Securities analyst Irene Nattel said in a recent research note that although Coutu's challenge is to find avenues of growth, "annual dividend increases and consistent share buy-back should enable the company to deliver high-single-digit [earnings per share] growth over our forecast period [into fiscal 2016]."

Ms. Nattel said there are not many large-scale acquisition opportunities currently. Potential targets some observers have highlighted include Katz Group Canada Ltd.'s Rexall chain and Sobeys' Lawtons Drugs.

"On the [second-quarter] conference call, management noted that while it would be eager to make acquisitions, the most likely form of M&A remains small independents as there are no larger networks available," said Ms. Nattel, who is forecasting third-quarter EPS of 29 cents, slightly above the consensus of 28 cents.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter